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GAO reported on the progress which the Agency for International Development (AID) has made in assisting the Government of Egypt to develop its private sector.

GAO found that the development of a private-sector development strategy has been slow and difficult, with AID and Egyptian Government limitations impeding progress. The Egyptian business climate does not favor the private sector, and Egypt has not clearly defined the role which the private sector should play in its economic development. GAO found that AID had not long been involved directly with industrial private-sector development when it began to design a program for Egypt. The AID mission did not actively involve the Egyptian Government in developing its strategy, and it has viewed the program to date as a learning period and plans to refine its strategy and develop projects to better respond to Egypt's needs in the future. Because of implementation problems, GAO stated that it is doubtful some projects will achieve their objectives. Financial assistance provided has thus far benefited a relatively small group, primarily larger, financially well-established firms located in the Cairo/Alexandria metropolitan areas. Financial assistance has not been targeted toward small-scale enterprises which comprise the majority of Egyptian private enterprises. GAO believes that AID could apply some of the lessons learned in Egypt to other countries.

Recommendations for Executive Action

Status: Closed - Implemented

Comments: AID has deobligated $22 million from the Fund. A new permanent executive secretary was nominated for the agency in charge of the Fund, and AID renegotiated the remaining $10 million Fund with the Government of Egypt.

Recommendation: The Administrator of AID should direct the mission to consider folding the Private Investment Encouragement Fund into the proposed Production Credit II project if it is approved; if not, the Administrator should consider terminating the Private Investment Encouragement Fund project and seeking an alternative means for delivering term-credit assistance.

Agency Affected: United States Agency for International Development

Status: Closed - Implemented

Comments: The report did not make a formal recommendation in this area. However, if there was a recommended action, AID would not have acted since it feels constrained by federal statutes and state regulations. AID does not feel Congress would be sympathetic to a change in the statute.

Recommendation: The Administrator of AID should explore the mechanisms to mitigate the negative effects of AID procurement regulations on private-sector credit projects.

Agency Affected: United States Agency for International Development

Status: Closed - Not Implemented

Comments: AID stated that, given the changing, fluid situation it is addressing, it believes that the present information base is reasonably sufficient for planning purposes. AID stated that it believes that thorough consideration and comprehension of the information and database that presently exists in Egypt is necessary before undertaking new, comprehensive studies.

Recommendation: The Administrator of AID should direct the mission to assess future information needs and, in conjunction with Egyptian officials, develop a plan to address these needs.

Agency Affected: United States Agency for International Development

Status: Closed - Implemented

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Administrator of AID should direct the mission to actively involve the Egyptian Government in developing, refining, and revising its private-sector development strategy to ensure that it is consistent with Egyptian Government priorities and goals.

Agency Affected: United States Agency for International Development

Status: Closed - Implemented

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

Recommendation: The Administrator of AID should direct the mission to closely monitor the Private Sector Feasibility Studies project and terminate it if the project becomes inactive again.